Sell-offs of Ghana’s bonds deepen liquidity challenge
The massive sell-offs of Ghana’s bonds by non-resident investors since the start of the year is beginning to deepen the liquidity challenges in the country, Minister of Finance, Mr Ken Ofori-Atta has said.
About 25 per cent of the country’s bonds, which was held by non-resident investors, is reported to have been sold off in the wake of the COVID-19 pandemic.
With the current market conditions already staving off funds on the market, Mr Ofori-Atta, said the sell-offs had worsened the liquidity constraints.
The Finance Minister said that when he appeared before Parliament to present a memorandum on the government’s decision to access emergency funding from the Bank of Ghana.
He said the uncertainty underlining the COVID-19 pandemic had affected the fiscal operations of the government and to a larger extent, on the implementation of the 2020 budget.
That, he said, had been exacerbated by shortfalls in revenue, prompting additional emergency spending and tight financing conditions.
“The revenue shortfalls emanate mainly from petroleum revenue shortfalls through plunging crude oil prices, shortfall in import duties, other taxes and non-tax revenues which has significantly affected the cash flows for the year,” he stated.
Widening fiscal gap
He said preliminary assessment by the ministry indicated that the fiscal gap had widened to GH¢21.42 billion.
This included a revenue shortfall of GH¢15.85 billion and COVID-19 related expenses of GH¢5.57 billion.
BoG financing
He said financing the fiscal gap from the domestic market would not only significantly increase domestic interest rates but also be counterproductive as it would deny the private sector access to cheaper sources of financing.
He noted that global financing conditions had also worsened leading to investors shunning emerging markets which left the government with no alternative than to rely on BoG to finance the gap.
“Given this exceptional circumstances and the challenges, the Minister of Finance , Governor of the BoG and the Controller and Accountant General as required under section 30 of the Bank of Ghana Act, 2002 (Act 612) as amended have agreed to trigger the emergency financing provisions under the law which permits increasing the limits on the purchase of government securities by BoG in the event of an emergency to help financial residual spending.
“Government, therefore, decided to launch a special COVID-19 bond programme with a size of GH¢10 billion. The coupon rate is pegged to the prevailing monetary policy rate with a ten-year tenor and two years moratorium of both principal and interest payments.
“I am pleased to announce that the BoG has released the first tranche of the facility amounting to GH¢5.5 billion to the MoF on Friday, May 15, 2020,” he explained.
Macro-economic stability
The Finance Minister also noted that the uncertainty underlining the pandemic created significant risks in sustaining the country’s macro-economic stability.
He said that was to ensure that the foundations of the country’s economic recovery, revitalisation and structural transformation was maintained.
“The economic impact of COVID-19 could be as long as three years and to address this, the President has directed the MoF to come up with a revitalisation plan for the country and in this regard, we are developing a three-year COVID-19 Alleviation and Revitalisation of Enterprise Support programme to help stabilise the economy.
“We are confident that this programme will lead us to the journey of achieving a Ghana beyond aid,” he noted.